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18 July 2012

Executive Politics and Muskrat Falls #nlpoli

In this series, we are not concerned with whether or not the Muskrat Falls project is good or bad. That is a separate issue.

Nor are we presenting information you shouldn’t already have. Very little of what you will read should come as a surprise, especially if you read SRBP regularly.

Rather this series is an effort to develop some explanations about why the provincial government’s energy company has been working on the Lower Churchill Project continuously for 15 years and yet has produced nothing. The Performance ParadoxNalcor and its predecessor – Newfoundland and Labrador Hydro – have missed deadline after deadline. Even in its most recent incarnation of the project – the Muskrat Falls development – the company continues to miss key deadlines set by the company itself. The project costs continue to escalate: 43% since 2010 and that does not take into account inflationary costs. At least one aspect of the current development proposal is forecast to cost less than it would have in 1998.

At the same time that it has not been able to deliver a Lower Churchill development, Nalcor controls billions in public assets. If Muskrat Falls does go ahead, Nalcor will receive billions more in outright cash transfers and in publicly guaranteed loans. They will export power from Labrador to Nova Scotia at no cost to Nova Scotia. What’s more, Nalcor plans to charge the entire cost of the project plus profit to Newfoundland and Labrador ratepayers. The people of the province, people who ostensibly own Nalcor will pay for Muskrat Falls and then pay for it again for the next half century.

How does a company that has failed repeatedly continue to accumulate more and more power?

SymbiosisNalcor’s power derives from its special relationship the company has enjoyed with the past five Premiers. Its chief executive has often enjoyed direct, personal access to the Premier. Under Roger Grimes and Danny Williams, the chair of the board was the Premier’s trusted political ally. Danny Williams relied on Nalcor’s executives to negotiate on behalf of the provincial government as if they were his personal emissaries. In the aftermath of the Hebron debacle in 2006, Williams reputedly sent Nalcor chief executive Ed Martin to the companies to do whatever it took to get talks started again.

Aside from the political value of the promise of always imminent development, the Lower Churchill Project office has been a source of patronage in a province where patronage has assumed a renewed position of strength in local politics. Under Brian Tobin, Roger Grimes, Danny Williams and Kathy Dunderdale, a steady flow of contracts related to the Lower Churchill have delivered a steady flow of political benefits.

The “reward” for Nalcor has been equally significant. Beginning in 2000, the provincial cabinet started to remove Nalcor from traditional forms of government oversight. The first exemption – by the Liberals in 2000 - removed any hydro-electric development on the Churchill River from the jurisdiction of the public utilities board. In 2006, the Conservatives created an exemption that exempted what became Nalcor from the restriction on its lines of business but left in place the requirement that the public utilities board set electricity rates to protect the company’s financial viability. In 2008, the Conservatives gave the corporation exemptions from disclosure under the provincial access to information law or severely limited the ability of the province’s auditor general to review and disclose the results of any audits of Nalcor and its subsidiaries.

The combined effective of these changes has been to increase the Premier’s control and his or her freedom from effective oversight or counterbalancing.

Neo-SmallwoodismIn the early years of the 21st century, Nalcor is a throwback. It harkens back to a time in Newfoundland and Labrador when political power existed only in one office and when all economic development channelled through a single company. While other places may favour privatization or public-private partnerships, Nalcor is - by design and by action - a state-owned monopoly.

Executive Politics and Muskrat Falls: SummaryExecutive politics takes place inside government. It is the relationship among actors in government. It is the culture that exists within government and the legislative branch.

Executive politics in Newfoundland and Labrador has reduced oversight by legislative and internal government agencies while at the same time enhancing the power of a single political office. Government policy supports state control of some sectors of the economy, particularly electricity generation, and has created a corporation to implement that policy.

Free of competition, acting with the political warrant that comes from its special relationship with the most powerful political office in the province, and largely free of oversight except by its political master, Nalcor can do or not do as it wishes.

That is the environment in which Nalcor has pursued the Lower Churchill and Muskrat Falls.